Reference no: EM132465375

At the beginning of its 2020 calendar-year accounting period, ABC Inc. had retained earnings of $1,500,000. Before taking into account the following information, Raider calculated that income from continuing operations before taxes of $600,000 for 2020. Assume all of the following were material.

Point 1. At the beginning of 2016, the company purchased a machine for $12,000 that they estimated to have a useful life of 10 years with $2,000 salvage value. Straight-line depreciation was used but the bookkeeper neglected to include salvage value when calculating depreciation expense. The bookkeeper has already recorded depreciation expense for 2020.

Point 2. ABC had a gain on sale of a plant asset of $5,000 (pre-tax).

Point 3. ABC had an uninsured flood loss of $50,000 (pre-tax) that was considered to be a discontinued operation because it stopped operations for about two months.

Point 4. ABC declared cash dividends of $50,000 on its common stock and $100,000 on its preferred stock. $30,000 of the common stock dividends and $80,000 of the preferred stock dividends had been paid at year-end.

Point 5. On April 30, 2020 ABC decided to dispose of a component. On September 30, the component was sold for $1 million when its book value was $700,000. From January 1, 2020 until the time of sale, the component had a pre-tax loss of $100,000.

Point 6. ABC had unrealized pretax translation losses of $20,000 during 2020.

Point 7. ABC had a pre-tax unrealized holding gain on trading securities of 22,000 and a pre-tax unrealized holding gain on available for sale securities of 30,000. Both of which were included in the non-operating section on the income statement.

Question 1: Make a schedule to correct the incorrect Income from Continuing Operations before Taxes, by starting with the incorrect amount of $600,000 and work towards the correct amount.

Question 2: Prepare two separate but consecutive statements to report comprehensive income (Partial Income Statement followed by Comprehensive Income Statement) for 2020, beginning with your corrected income from continuing operations before taxes and including the appropriate EPS information. Assume 5,000 shares common stock were outstanding at the beginning of the year and 15,000 shares were outstanding at year-end. The tax rate was 40%.